Sivakumar & Co., Rep. by S.Mohanraj, CHENNAI V. ITO, Erode

ITA 706/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4367 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 23-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: REMA SMIRTHI V K ADV MR SHIVA
• Keywords: Principle of natural justice; Corroborative evidences; Assessment record; Onus to prove
• Section: 133A; 133(6); 131

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , !.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.706/MDS/2016 * * /ASSESSMENT YEAR: 2011-12 M/S.SIVAKUMAR & CO., REP. BY S. MOHANRAJ, NO.85, PERUNDURAI ROAD, ERODE. VS. THE INCOME TAX OFFICER, RANGE-I, WARD-I(4), NO.15, GANDHIJI ROAD, ERODE-638 001. [PAN: AAKFS 5148 P ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MS.REMA SMIRTHI.V.K., ADV. ./- 0 /RESPONDENT BY : MR.SHIVA SRINIVAS, JCIT 0 /DATE OF HEARING : 11.04.2017 0 /DATE OF PRONOUNCEMENT : 07.06.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 17.12.2015 OF COMMISSIONER OF INCOME TAX (APPEALS)- 3, CHENNAI, IN ITA NO.172/14-15(A)-1 FOR THE AY 2011-12 AND RAISED TH E FOLLOWING GROUNDS: ITA NO.706/MDS/2016 :- 2 -: 2.0 GROUND NOS.1, 7-9 ARE GENERAL IN NATURE WHICH DO ES NOT REQUIRE SPECIFIC ADJUDICATION. 3.0 GROUND NO.2 IS RELATED TO THE ADDITION OF RS.2, 95,760/- IN RESPECT OF CREDIT BALANCES IN THE FOLLOWING ACCOUNTS: SL.NO. NAME OF THE PARTY AMOUNT 1 M/S.SHYAMI OIL INDUSTRIES 1,20,500 2 M/S.SRI ANDAVAR AGENCY 98,760 3 M/S.SABASTIAN OIL MILLS 76,500 TOTAL 2,95,760 DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND TH E ABOVE OUTSTANDING BALANCES IS AS ON 31.03.2011. THE AO IS SUED SUMMONS U/S.131 WHICH WERE RETURNED UN-SERVED. THEREFORE, T HE AO HAS CALLED FOR THE EXPLANATION AS TO WHY THE BALANCES SHOULD NOT B E ADDED BACK TO THE INCOME. THE ASSESSEE EXPLAINED THAT THE SAID CREDI T BALANCES WERE OFFERED TO INCOME DURING THE PREVIOUS YEAR ENDING 31.03.201 3. NOT BEING IMPRESSED WITH THE EXPLANATION OF THE ASSESSEE, THE AO HELD THAT THE ASSESSEE HAS NOT DISCHARGED THE BURDEN OF PROOF WIT H REGARD TO THE GENUINENESS OF OUTSTANDING BALANCES AND THEREFORE ADDED BACK THE OUTSTANDING BALANCES TO THE RETURNED INCOME. 3.1 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) CONFIRMED THE A DDITION AS PER THE DISCUSSION MADE IN THE LD.CIT(A) ORDER IN PAGE NO.1 0 PARA NO.6.5 AS UNDER: ITA NO.706/MDS/2016 :- 3 -: 6.5 UNPROVEN LIABILITY - RS.2,95,760/-: THE ASSESSING OFFICER HAS HELD THAT THE AMOUNT OF R S.2,95,760/- IS UNPROVED LIABILITY IN THE CASE OF M/S.SHYAMI OIL INDUSTRIES, M/S.SRI ANDAVAR A GENCY AND M/S.SEBASTIAN OIL MILLS. THE AMOUNT ON THE CASES OF M/S.SHYAMI OIL INDUSTRIES AND M/S.SRI ANDAVAR AGENCY ARE SHOWN AS OPENING BALANCES FOR THE FINANCIAL YEAR 2010-11 RELEVANT FOR ASSESSMENT YEAR 2011-12. THE UNPROVEN CREDIT, IF ANY WILL HAVE TO BE TREATED AS INCOME IN THE YEAR OF INTRODUCTION. THE APPELLANT STATES THAT THESE ARE OFFERED AS INCO ME FOR FINANCIAL YEAR 2012-13 RELEVANT FOR THE FINANCIAL YEAR 2013-14. IF ASSESSING OFFICER S ACTION IS NOT CORRECT, THE OFFER BY THE APPELLANT IS ALSO NOT CORRECT. THE APPELLANT CANNOT DISPUTE THE ADDITION BY STATING THAT THE CREDITS ARE OFFERED FOR AY 2013-14. IT IS NOT APPEL LANTS OPTION TO DO SO. IN THE ABSENCE OF COGENT REBUTTAL, THE ADDITION OF RS.2,95,760/- IS C ONFIRMED. 3.2 DURING THE APPEAL THE LD.AR ARGUED THAT THE OUTSTA NDING BALANCES WERE OPENING BALANCES AND NOT RELATED TO THE AY UND ER CONSIDERATION. ACCORDING TO THE LD.AR, THE AO IS NOT PERMITTED TO MAKE THE ADDITION U/S.68 OF IT ACT IN RESPECT OF THE OPENING BALANCES . THE LD.AR FURTHER SUBMITTED THAT SINCE THE ASSESSEE HIMSELF HAS OFFER ED THE OUTSTANDING BALANCES TO THE INCOME FOR THE YEAR ENDING 31.03.20 13, THE SAME MAY BE RIGHTLY TAKEN AS ADMISSION OF INCOME TOWARDS SURREN DER OF CREDITORS U/S.41(1) FOR THE AY 2013-14 AND NO INTERFERENCE IS CALLED FOR. ON THE OTHER HAND, THE LD.DR RELIED ON THE ASSESSMENT ORDE R. 3.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL PLACED BEFORE US. IT IS NOT IN DISPUTE THAT THE CREDITORS RELAT ED TO THE OPENING BALANCES AS AT THE END OF THE YEAR. NO DOUBT, THE ASSESSEE H AS TO PROVE THE GENUINENESS OF THE OUTSTANDING AS ON 31.03.2013 FAI LING WHICH THE OUTSTANDING CREDITORS DEEMED TO BE BOGUS AND COULD BE BROUGHT TO TAX, AS BOGUS/UNPROVEN LIABILITIES SINCE IT RESULTS INTO EX CESS OF ASSETS OVER ITA NO.706/MDS/2016 :- 4 -: LIABILITIES FOR WHICH THE SOURCE WAS NOT EXPLAINED. HOWEVER, THE ASSESSEE HAS ADMITTED THE INCOME FOR THE AY 2013-14 U/S.41(1 ) OF IT ACT WHICH SHOWS THE FAIR ATTITUDE OF THE ASSESSEE. SINCE THE OPENING BALANCES WERE RELATING TO THE SUNDRY CREDITORS THE ASSESSEE IS HA VING LIBERTY TO DECIDE WHEN IT SHOULD BE SURRENDERED AND WHEN IT BECOMES N OT REPAYABLE. HOWEVER, THE AO HAS NOT GIVEN ANY FINDING REGARDING THE ADMISSION OF INCOME RELATING TO THE OUTSTANDING CREDITORS FOR TH E AY 2013-14. THE ASSESSEE ALSO NOT BROUGHT ANY EVIDENCE ON RECORD TO PROVE THAT THE ABOVE CREDITORS WERE OFFERED TO INCOME IN THE ASSESSMENT YEAR 2013-14. THEREFORE, WE REMIT THE MATTER BACK TO THE FILE OF THE AO AND DIRECT THE AO TO VERIFY THE ASSESSMENT RECORDS FOR THE AY 2013 -14 AND DELETE THE ADDITION, IF THE ASSESSEE HAS ADMITTED THE SUNDRY C REDITORS FOR THE AY 2013-14 AND IN CASE OF NON ADMISSION ADDITION MADE BY THE AO STANDS CONFIRMED. ACCORDINGLY, THIS GROUND OF APPEAL IS AL LOWED FOR STATISTICAL PURPOSE. 4.0 GROUND NO.3 IS RELATED TO THE ADDITION OF RS.54,78 8/- RELATING TO THE OUTSTANDING CREDIT BALANCES IN THE NAME OF MR.P.R.N AGARAJAN. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSES SEE HAS SHOWN A LIABILITY OF RS.54,788/- AT THE END OF FY 31.03.201 1. THE AO ISSUED SUMMONS U/S.131 AND THE SUMMONS WERE SERVED TO THE CONCERNED CREDITOR BUT NOT RESPONDED TO WITH THE SUMMONS. TH E AO HAS CALLED FOR THE EXPLANATION AS TO WHY THE SAME SHOULD NOT BE AD DED BACK TO THE INCOME. THE ASSESSEE HAS SUBMITTED THE PURCHASE BI LLS AND BANK ITA NO.706/MDS/2016 :- 5 -: STATEMENT FOR FUNDS TRANSFER. THE AO FOUND THAT TH E AMOUNT WAS ACTUALLY PAID TO MR.N.NADHAN INSTEAD OF MR.NAGARAJAN ON 19.1 1.2011 AND DISBELIEVED THE OUTSTANDING BALANCE AS ON 31.03.201 1 AND ADDED BACK TO THE INCOME. 4.1 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE CIT(A) AND THE LD.CIT(A) CONFIRMED THE ORDER OF THE AO AS PER PARA NO.6.8 OF THE LD.CIT(A) ORDER: THE AO HAS ADDED THIS AMOUNT AS UNPROVED LIABILITY. THE APPELLANTS CLAIM IS THAT THE AMOUNT WAS PAID IN THE SUBSEQUENT YEAR, BUT THE NAM E IN THE BANK STATEMENT IS N.NATHAN. APPELLANTS AR STATES THAT, IT MIGHT HAVE BEEN MIS- SPELLED BY THE BANKER. THIS IS AN ASSUMPTION. NO CONFIRMATION FROM SHRI P.R.NAGARAJAN HAS BEEN PRODUCED. HENCE, THE ADDITION IS NOT REBUTTED WITH EVIDENCE. THE ADDITIO N MADE BY THE ASSESSING OFFICER IS SUSTAINABLE AND IS CONFIRMED. 4.2 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US. APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT BOTH MR.NAGARAJAN & MR.NATHAN IS THE SAME PERSON AND THE AMOUNT WAS PAID TO MR.NAGARAJAN, HENCE THE ADDITION NEEDS TO BE DEL ETED. THE LD DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 4.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THERE WAS AN AMOUNT OUTSTANDING OF RS.54,788/- IN THE NAME OF MR.P.R.NAGARAJAN IN THE BOOKS OF THE ASSESSEE AND T HE AO HAD ISSUED THE ITA NO.706/MDS/2016 :- 6 -: SUMMONS TO THE CREDITOR WHICH WAS SERVED ON THE CRE DITOR. BUT THE CREDITOR DID NOT RESPOND TO THE SUMMONS ISSUED U/S. 131 OF IT ACT. THEREFORE, THE AO CALLED FOR THE EXPLANATION AS TO WHY THE OUTSTANDING AMOUNT SHOULD NOT BE ADDED BACK TO THE INCOME WHICH APPEARS TO BE SHIFTING THE RESPONSIBILITY ON THE ASSESSEE INSTEAD OF ENFORCING THE ATTENDANCE OF THE CREDITOR AND CONDUCTING THE ENQUI RIES AND TAKING THE TRANSACTION TO LOGICAL END. POWERS ARE VESTED WITH THE AO U/S.131, 133A & 133(6) TO CALL FOR THE INFORMATION AND TO VERIFY THE TRANSACTION. IN CASE, THE CREDITOR HAS NOT APPEARED BEFORE THE AO FOR THE SUMMONS ISSUED, LEGAL REMEDIES ARE AVAILABLE TO THE AO TO VERIFY TH E GENUINENESS OF THE TRANSACTION AND GIVE HIS FINDING INSTEAD OF WASHING THE HANDS BY ISSUING SUMMONS AND SHIFTING THE RESPONSIBILITY TO THE ASSE SSEE. THE ASSESSEE HAS FILED HIS REPLY ENCLOSING THE STATEMENT IN RESPECT OF THE TRANSACTION AND ACCORDING TO WHICH THE PAYMENT WAS MADE TO MR.N.NAD HAN AND THE ASSESSEE ALSO NOT FURNISHED ANY EVIDENCE TO ESTABLI SH THAT THE PAYMENT WAS MADE TO NAGARAJAN. THE LD.AR ARGUED THAT THE AM OUNT REPRESENTS OPENING BALANCE AND THE SAME CANNOT BE TREATED AS I NCOME. EVEN THOUGH IT IS AN OPENING BALANCE, IT IS THE RESPONSIBILITY OF THE ASSESSEE TO PROVE THE GENUINENESS OF THE OUTSTANDING BALANCE AS AT TH E END OF THE YEAR. IF THE ASSESSEE FAILS TO PROVE THE OUTSTANDING AS GEN UINE NORMAL INFERENCE IS EITHER THE OUTSTANDING AMOUNT WAS PAID OUTSIDE THE BOOKS OF ACCOUNTS FROM UNDISCLOSED SOURCES OR THE OUTSTANDING IS BOGU S WHICH RESULTS INTO EXCESS OF ASSETS OVER LIABILITIES AND THE SAME CAN BE HELD AS INCOME, SINCE THE OUTSTANDING AMOUNT WAS BROUGHT IN TO THE BOOKS. IN THIS CASE, NEITHER ITA NO.706/MDS/2016 :- 7 -: THE AO HAS CONDUCTED THE PROPER ENQUIRIES NOR THE A SSESSEE HAS FURNISHED THE PROOF TO ESTABLISH THAT EITHER THE OUTSTANDING LIABILITY IS GENUINE OR IT WAS PAID TO THE CORRECT PARTY. THEREFORE WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE SHOULD GO BACK TO THE FILE OF THE AO TO CONDUCT FURTHER INQUIRIES. ACCORDINGLY, WE SET-ASIDE THE ISSUE TO THE FILE OF THE AO TO CONDUCT FURTHER ENQUIRIES AND DECIDED THE ISSUE ON MERITS. THIS GROUND OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTIC AL PURPOSE. 5.0 GROUND NO.4 IS RELATED TO THE ADDITION OF RS.85,56 3/- DIFFERENCE IN BOUGHT NOTE PURCHASES. THE AO FOUND THAT THERE WAS A DIFFERENCE OF RS.85,563/- IN BOUGHT NOTE PURCHASES WHICH WAS ADD ED BACK TO THE INCOME. ACCORDING TO THE AO, IN THE MONTH OF MAY 2 010 THE ASSESSEE HAS ADMITTED PURCHASES OF RS.13,43,840/- IN THE SALES T AX RETURNS WHEREAS IN THE ASSESSEES BOOKS, THE ASSESSEE HAS ADMITTED ONL Y RS.12,58,277/- AND THERE WAS DIFFERENCE OF RS.85,563/-WHICH WAS ADDED BACK TO THE INCOME AS SUPPRESSION OF STOCK. THE LD.CIT(A) CONFIRMED T HE ORDER AS PER THE PAGE NO.11, PARA NO.6.10 WHICH IS EXTRACTED AS UNDE R: THE APPELLANT AGREES THAT THIS IS A BOUGHT NOTE PUR CHASE. NO SUPPORTING EVIDENCE HAS BEEN FURNISHED. THE ADDITION IS CONFIRMED IN THE ABSENCE OF APPELLANT ADDUCING EVIDENCE TO PROVE THE PAYMENT MADE BY WAY OF CONFIRMATION LETTER. 5.1 DURING THE APPEAL, THE LD.AR ARGUED THAT THE ASSES SEE HAS MADE THE BOUGHT NOTE PURCHASES AND STOCKS WERE RETURNED TO THE SUPPLIER DUE TO THE SUB-STANDARD QUALITY OF STOCK. THE ASSESSEE FURNISHED A COPY OF LETTER DATED 26.07.2010 FROM SHRI S. DEVARAJ SUPPLI ER OF THE GOODS STATING ITA NO.706/MDS/2016 :- 8 -: THAT DUE TO SUB-STANDARD QUALITY OF THE GOODS THE A MOUNT OF RS. 85,563/- WAS REDUCED FROM THE PAYMENT. 5.2 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE ASSESSEE HAS REPORTED EXCESS PURCHASES TO THE SALES TAX RETURNS AND LESS AMOUNT WAS ACCOUNTED IN THE BOOKS OF THE A SSESSEE. THERE WAS NO DISPUTE REGARDING THE FACT THAT THE ASSESSEE HAS NOT RECORDED ANY EXCESS EXPENDITURE OR BOGUS EXPENDITURE RESULTING I NTO INFLATION OF EXPENDITURE. THE SUPPLIER HAS GIVEN A LETTER STATI NG THAT THE GOODS SUPPLIED WERE SUB-STANDARD AND THE AMOUNT WAS REDUC ED FROM HIS PAYMENT. WHEN THE PAYMENT WAS REDUCED, THE GOODS W ERE SUB-STANDARD AND THE ASSESSEE HAS NOT BOOKED ANY EXCESS EXPENDIT URE, THERE IS NO CASE FOR MAKING ADDITION RELATING TO SUPPRESSION OF STOC K. ACCORDINGLY, THE ADDITION MADE BY THE AO IS DELETED AND THE ASSESSEE S APPEAL ON THIS GROUND IS ALLOWED. 6.0 GROUND NO.5 IS RELATED TO THE CHARGING OF INTEREST TO THE EXTENT OF RS.2,08,938/- ON THE DEBIT BALANCE OF PARTNERS CAPI TAL ACCOUNTS. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE A SSESSEE HAS CHARGED INTEREST AS PER THE PARTNERSHIP DEED ON THE CREDIT BALANCES OF THE PARTNERS CAPITAL ACCOUNT AND CLAIMED A SUM OF RS.6,85,000/- AS DEDUCTION IGNORING THE DEBIT BALANCES IN FLUCTUATING CAPITAL ACCOUNTS. THE ASSESSEE IS ITA NO.706/MDS/2016 :- 9 -: MAINTAINING TWO TYPES OF ACCOUNTS I.E. ONE IS CAPIT AL ACCOUNT (FIXED) AND THE SECOND IS CURRENT ACCOUNT. CURRENT ACCOUNT IS FLEXIBLE ACCOUNT AND THE ASSESSEE MAKES THE DRAWINGS AND DEPOSITS IN THE CUR RENT ACCOUNT. WHILE THE FIXED CAPITAL ACCOUNTS SHOW THE CREDIT BALANCES WHEREAS THE FLUCTUATING CAPITAL ACCOUNTS WERE SHOWING THE DEBIT BALANCE (I.E. OVER DRAWL FROM THE ACCOUNTS). THE ASSESSEE IGNORED THE DEBIT BALANCES IN CURRENT ACCOUNTS AND CHARGED THE INTEREST ON CREDIT BALANCE OF THE FIXED CAPITAL ACCOUNTS AND CLAIMED IT AS DEDUCTION. THE AO ARRIVED AT THE NET BALANCES OF THE CAPITAL ACCOUNTS BY CLUBBING BOTH T HE ACCOUNTS AND ALLOWED THE INTEREST @12% ON NET BALANCES AND DISAL LOWED THE EXCESS AMOUNT OF INTEREST CLAIMED BY THE PARTNERS STATING THAT BORROWED AMOUNT HAS NOT BEEN USED FOR THE PURPOSE OF BUSINESS. THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE AO. 6.1 APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED T HAT THE ASSESSEE IS MAINTAINING TWO TYPES OF ACCOUNTS ONE IS FIXED CAPI TAL ACCOUNT WHERE THERE IS NO CHANGE IN THE BALANCES AND THE SECOND IS FLUC TUATING CAPITAL ACCOUNT WHERE THE PARTNERS ARE MAKING WITHDRAWALS AND DEPOS ITS. THE PARTNERSHIP DEED PERMITS THE ASSESSEE TO CHARGE INTEREST @12% O F THE CREDIT BALANCES. THE PARTNERSHIP DEED ALLOWS THE ASSESSEE TO CHARGE INTEREST ON FIXED CAPITAL WHEREAS THERE IS NO PROVISION TO DISA LLOW THE INTEREST ON THE NEGATIVE BALANCES OF THE PARTNERS CAPITAL. THE LD. AR ARGUED THAT THE SYSTEM IS FOLLOWED BY THE ASSESSEE CONSISTENTLY AND THERE IS NO REASON TO DISTURB THE CONSISTENT SYSTEM FOLLOWED BY THE ASSES SEE. ON THE OTHER ITA NO.706/MDS/2016 :- 10 -: HAND, THE LD.DR ARGUED THAT THE INTEREST OF PARTNER S CAPITAL ACCOUNT IS TO BE CHARGED ON THE NET BALANCES AFTER REDUCING THE O VERDRAWALS MADE BY THE ASSESSEE. THE ASSESSEE IS NOT ALLOWED TO OVERD RAW THE CURRENT ACCOUNT AND CLAIM THE INTEREST ON FIXED CAPITAL ACC OUNTS IGNORING THE DEBIT BALANCES IN THE CURRENT ACCOUNTS. THE AO HAS RIGHT LY ALLOWED THE INTEREST ON NET BALANCES I.E. AFTER REDUCING THE DEBIT BALAN CE FROM THE FIXED CAPITAL ACCOUNTS AND THERE IS NO REASON TO INTERFERE WITH O RDERS OF THE CIT(A). 6.2 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. IT IS AN UNDISPUTED FACT THAT THE PARTNERS OF THE FIRM ARE HAVING TWO TYPES OF CAPITAL ACCOUNTS I.E. FIXED CAPITAL ACCOUN T AND THE FLUCTUATING CAPITAL ACCOUNT. THE DRAWINGS ARE MADE FROM THE FL UCTUATING CAPITAL ACCOUNT KEEPING THE FIXED CAPITAL ACCOUNT INTACT. THE PARTNERS HAVE ALSO OVERDRAWN FROM THE FLUCTUATING CAPITAL ACCOUNT AND THE FLUCTUATING CAPITAL ACCOUNTS ARE SHOWING THE DEBIT BALANCES. THOUGH TH E PARTNERSHIP DEED PERMITS TO CHARGE INTEREST ON PARTNERS CAPITAL BALA NCES, THE NEGATIVE BALANCE IN THE FLUCTUATING CAPITAL ACCOUNT CANNOT B E IGNORED. THE NET CAPITAL ACCOUNT BALANCE WOULD BE THE FIXED CAPITAL ACCOUNT MINUS THE DEBIT BALANCE IN FLUCTUATING CAPITAL ACCOUNT. THE INTEREST ALLOWABLE ON CAPITAL ACCOUNTS AS PER THE PARTNERSHIP DEED WOULD BE NET BALANCES OF BOTH THE ACCOUNTS. IN THE INSTANT CASE THE AO HAS ALLOWED THE INTEREST ON NET CREDIT BALANCE OF BOTH THE ACCOUNTS AS PER THE TABLE GIVEN BELOW: ITA NO.706/MDS/2016 :- 11 -: PARTNERS SALARY CAPITAL FLUCTUATING CAPITAL NET CAPITAL ACTUAL INTEREST AT 12% INTEREST CLAIM EXCESS CLAIM OF INTEREST M. JAGANATHAN 2100000 395608 1704392 204527 252000 47472.96 M. VENKATACHALAM 1500000 1000053 499947 59993.64 180000 120006.4 S. MOHANRAJ 1200000 217995 982005 117840.6 144000 26159.4 S. GOVINDARAJ 900000 127501 772499 92699.88 108000 15300.12 475061.12 684000 208938.8 THE LD.AR DID NOT SHOW ANY MISTAKE IN NET CAPITAL ACCOUNT ARRIVED AT BY THE AO. THE AO ARRIVED AT NET CAPITAL BALANCE C ORRECTLY. ACCORDINGLY, THE AO HAS COMPUTED THE ACTUAL INTEREST ON NET CAPI TAL BALANCES WHICH WORKED OUT TO RS.4,75,061/- AGAINST THE CLAIM OF RS .6,84,000/-. THE ASSESSEE ALSO DID NOT BRING ANY MISTAKE IN COMPUTAT ION OF THE INTEREST TO OUR NOTICE. THE AO HAS RIGHTLY ALLOWED THE INTERES T ON NET BALANCES WHICH WAS CONFIRMED BY THE LD.CIT(A). THEREFORE, WE DO N OT FIND ANY MISTAKE IN THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. THIS GROUND OF THE APPEAL OF THE ASSESSEE IS DISMISSED. 7.0 GROUND NO.6 IS RELATED TO THE ADDITION OF RS.37 ,30,211/- TOWARDS THE EXCESS CLOSING STOCK. THE AO CALLED FOR THE CL OSING STOCK STATEMENT FROM INDIAN OVERSEAS BANK, SARAMPATTI BRANCH AND AS PER THE STOCK STATEMENT RECEIVED FROM THE BANK, THE CLOSING STOCK WAS VALUED AT RS.81,05,720/-. THE AO FOUND STOCK DIFFERENCE IN T HE GINGELLY OIL SEEDS AND GINGELLY OIL CAKES TO THE EXTENT OF 1500 BAGS A ND 58,125 RESPECTIVELY AND ARRIVED THE VALUE OF RS.37,30,211/- AND BROUGHT TO TAX. THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE AO IN PARA NO.6.1 AS UNDER: ITA NO.706/MDS/2016 :- 12 -: 6.1 DIFFERENCE IN THE PARTY LEDGER CHUNNILALA BABET I & CO. RS.5,10,801/- THE ASSESSING OFFICER HAS MADE THIS ADDITION AS UNPR OVED PURCHASES FROM CHUNNILALA BABETI & CO. OF RS.5,10,801/-. THE ASSESSING OFFICER HAS ST ATED THAT THERE IS DIFFERENCE BETWEEN THE ACCOUNT COPY OF THE ASSESSEE AND THE OTHER PART Y. IT HAS BEEN CONTENDED BY THE APPELLANTS AR THAT THE ACCOUNT COPY WHICH THE ASSE SSING OFFICER HAS RELIED ON TO MAKE THE ADDITION HAS NOT BEEN GIVEN TO THE APPELLANT FOR RE BUTTAL. DURING THE COURSE OF ASSESSMENT AND APPELLATE PROCEEDINGS THE DETAILS OF THE TRANSA CTIONS WITH CHUNNILAL BABETI & CO., INCLUDING THE INVOICE AND MODE OF PAYMENT BY CHEQUE FROM INDIAN OVERSEAS BANK HAVE BEEN FURNISHED. THE ENTRIES HAVE BEEN RECONCILED AS PER THE ASSESSEES BOOKS OF ACCOUNTS. IF THERE IS A DIFFERENCE WITH OTHER PARTIES, IT COU LD BE DUE TO PENDING RECONCILIATION AT THE OTHER END. SINCE EVIDENCE HAS BEEN ADDUCED IN SUPPO RT OF ENTRIES OF ASSESSEES BOOKS OF ACCOUNT, ADDITION FOR UNACCOUNTED PURCHASES WILL IS NOT SUSTAINABLE. PRINCIPLES OF NATURAL JUSTICE HAS BEEN VIOLATED. THE ASSESSING OFFICER SHO ULD HAVE TAKEN THE COURSE OF ACTION OF REFERRING THE MATTER TO THE ASSESSING OFFICER OF CHU NNILALA BAHETI & CO. POINTING OUT THE DISCREPANCY AS THERE IS NO GROUND FOR MAKING THE AD DITION IN THE CASE OF THE APPELLANT WHOSE ENTRIES SUBSTANTIATED BY INVOICES AND CHEQUE PAYMENTS. 7.1 APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT THE ASSESSEE IS MAINTAIN REGULAR STOCK BOOKS AND THE BANK STOCK ST ATEMENT SHOULD NOT BE TAKEN AS SACROSANCT TO ARRIVE AT THE STOCK, SINCE T HE INFLATED STOCKS FIGURES WERE GIVEN TO THE BANK FOR THE PURPOSE OF BANK LOAN WITHOUT HAVING THE ACTUAL STOCKS. THE ACTUAL STOCKS ARE ACCORDING TO THE STOCK BOOK MAINTAINED AND SUBMITTED BEFORE THE AO. THEREFORE, THE LD.AR CONTENDED THAT THE STOCK POSITION GIVEN BY THE ASSESSEE AT TH E TIME OF ASSESSMENT IS ACTUAL PHYSICAL INVENTORY WHICH SHOULD BE RECKONED AS A CORRECT STOCK FOR THE PURPOSE OF INCOME TAX AND THE STOCKS VALUED AND GIVEN TO THE BANKS SHOULD BE IGNORED. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. N.SWAMY 2000 241 ITR 363 (MAD) CIT AHMEDABAD-III V. RIDDHI STEEL AND TUBES PVT. LT D. [2013] 40 TAXMAN.COM 177 (GUJARAT). ITA NO.706/MDS/2016 :- 13 -: 7.2 ON THE OTHER HAND, THE LD.DR ARGUED THAT THE ASSES SEE HAS FURNISHED THE DETAILS OF STOCKS HELD AS ON 31.03.20 11 AT RS.85,05,720/- TO THE BANK WITH VARIOUS QUANTITATIVE DETAILS AFTER DU LY CERTIFYING THAT THE STOCK AS PER THE STOCK STATEMENT IS FULLY INSURED A ND THE POSITION OF THE STOCK AS PER THE BANK STOCK STATEMENT WAS TRUE AND CORRECT. ON THE BASIS OF THE STOCK POSITION GIVEN BY THE ASSESSEE TO THE BANK, IT HAS ALLOWED THE DRAWING POWER. THOUGH IT IS HYPOTHECATION LOAN, TH E STOCK STATEMENT GIVEN TO THE BANK CANNOT BE IGNORED SINCE IT WAS CE RTIFIED BY THE ASSESSEE AS TRUE AND CORRECT AND THE STOCKS WERE DULY INSURE D AS PER THE STOCK STATEMENT GIVEN TO THE BANK. THE LD.DR ALSO RELIED ON THE DECISION OF 286 ITR 637 AND 328 ITR 471. 7.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. AS PER THE ASSESSMENT ORDER, THE STOCK VALUATION A S ON 21.04.2014 WAS RS.62,52,774/-. THE AY INVOLVED IS 2011-12, HEN CE, THERE MUST BE A TYPOGRAPHICAL ERROR IN THE DATE OF THE STOCK. AGAI NST THE STOCK OF RS.62,52,774/-, AS PER BALANCE SHEET, THE STOCK STA TEMENT GIVEN TO THE BANK WAS VALUED AT RS.81,05,720/- AND THE AO HAS AR RIVED AT THE DIFFERENCE OF RS.37,37,211/- WHICH APPEARS TO BE PA TENTLY WRONG. BOTH THE VALUES OF THE STOCKS STATEMENTS ARE COMPARED AN D THE DIFFERENCE WORKS OUT TO RS.18,54,946/- (I.E. RS.81,05,720 62 ,50,774). ITA NO.706/MDS/2016 :- 14 -: FROM THE ABOVE, IT APPEARS THAT THE AO HAS NOT WOR KED THE DIFFERENCE CORRECTLY. FROM THE ASSESSMENT ORDER AN D FROM THE SUBMISSIONS OF THE ASSESSEE, IT WAS NOT CLEAR WHETH ER THE ASSESSEE HAS MAINTAINED THE REGULAR STOCK BOOK OR NOT. THE BASI S OF TAKING THE STOCK AS ON 21.04.2014 AND THE BASIS OF ARRIVING AT THE STOC K AS ON 31.03.2011 WERE NOT FURNISHED. IT IS UNETHICAL PRACTICE TO SU BMIT THE FALSE STATEMENTS TO THE BANKS WITH THE PURPOSE OF TAKING THE LOAN AN D FOR THE SAME REASON PUBLIC SECTOR BANKS ARE SUFFERING WITH HUGE NPAS. IN ASSESSEES CASE, THE ASSESSEE HAS NOT ONLY GIVEN AN UNDERTAKING THAT THE STOCK AS PER THE BANK STATEMENT WAS TRUE AND CORRECT AND THE SAME WAS INS URED FOR THE WHOLE AMOUNT. IN THIS CASE, IT WAS NOT ONLY STATEMENT GI VEN FOR THE PURPOSE OF LOAN BUT ALSO MADE INSURANCE FOR THE WHOLE OF THE S TOCK OF RS.81,05,720/-. THEREFORE, IT IS THE BURDEN OF THE ASSESSEE TO PROV E THAT THE STOCKS PROVIDED TO BANK ARE FALSE WITH A TANGIBLE EVIDENCE . SINCE THE ASSESSEE DID NOT PRODUCE STOCK BOOK AND THE AO DID NOT GIVE ANY FINDING WITH REGARD TO MAINTENANCE OF STOCK REGISTERS AND THE ST OCK VALUATION WAS AS ON 21.04.2014 WHICH WAS NOT THE RELEVANT DATE FOR T HE ASSESSMENT YEAR UNDER CONSIDERATION, WE ARE OF THE CONSIDERED OPI NION THAT THE FACTUAL POSITION REGARDING THE PHYSICAL STOCK AS ON 31.03.2 011 RELEVANT TO CLOSING DATE FOR THE AY 2011-12 AND THE ACTUAL STOCK AS ON 31.03.2011 REQUIRE FURTHER VERIFICATION TO ARRIVE AT THE CORRECT CLOSI NG STOCK. THOUGH THE ASSESSEE CONTENDED THAT THE STOCK STATEMENT WAS GIV EN ONLY FOR THE PURPOSE OF BANK LOAN, ON RECEIPT OF THE STOCK STATE MENT THE BANK AUTHORITIES MAKES THE PHYSICAL VERIFICATION OF THE STOCKS HYPOTHECATED TO ITA NO.706/MDS/2016 :- 15 -: BANK SUBSEQUENT TO 31.03.2011 FROM WHICH THE STOCK POSITION CAN BE WORKED OUT FOR THE RELEVANT DATE I.E 31.03.2011. T HE AO IS DIRECTED TO VERIFY THE CORRECT PHYSICAL STOCK AS ON 31.03.2011 AND DECIDE THE ISSUE AFRESH ON MERITS. THE ASSESSEE IS DIRECTED TO SUBMI T THE NECESSARY DETAILS TO THE AO. THE APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. 8.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH JUNE, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 7 TH JUNE, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF